Are you planning to buy that smart-phone that you have always dreamed of having? Or that 52” flat screen LED TV for your drawing room? If yes, how do you plan on paying for it? Cash on delivery or EMI?

I think EMI. So, am I right or am I right?

With the festive season kicking in, all you can see are attractive discounts and offers to purchase the latest gadgets and appliances on EMIs.

Most people have this perception that buying things on EMI is the best bet they can have.

But alas! They are mistaken because EMI is a big debt trap and I have facts to prove it to you.

For the ignorant lot, EMI or Equated Monthly Installment is a scheme or a loan product that allows the customer to purchase something right off with a minimum down payment. The customer is then able to use the product immediately with regular installments being paid every month for an extended period of time.

This is a pretty popular concept in India, especially when it comes to buying electronic appliances and all kinds of gadgets. The one thing about EMIs that attracts people is its easy paying options which give a fall sense of security to the customer making him believe that he is grabbing the deal of the year when in reality he is just getting mugged indirectly. And I cannot emphasize more the fact that EMI is simply a trap that is ready to capture you if you are naive enough.

I know you won’t believe me. Let’s do the calculations then, shall we?

A Comparison To Make It Clear:

Let us assume that there are two friends, Tanya and Sanya. They want to purchase the same smart-phone worth Rs. 40,000 on an e-commerce portal. Tanya went for the Cash on Delivery option whereas Sanya chose to buy it on “Easy EMIs” as her credit card company had a special tie-up with the e-commerce company.

Let’s have a look at the calculations:

Tanya: She simply paid the principle amount of Rs. 40,000 and is done with it. Now, she is free to use the phone as she sees fit without any worries of future payments. Not to mention the smile she has on her face on using her new phone!

Sanya: Sanya, on the other hand, used her credit card and paid just Rs. 2,496 as down payment and owned the phone.

Who do you think got the better deal? Sanya?


As she made the purchase on EMI, she chose 24-months tenure to repay the amount. She paid Rs. 1780 to the bank every month for the entire tenure.

This included the 13 percent interest rate charged by the bank on the borrowed amount for providing her the convenience of easy repayment.

This means that the total amount she is actually paying is Rs. 45,200!

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On top of that, the bank also charged 0.5 percent of the principle amount as a processing fee to enable the EMI option. The processing fee i.e. 0.5% of Rs. 40,000 comes out to be Rs. 200 which when added to the total amount becomes Rs. 45,400.

So, Sanya ended up paying Rs. 5,400 extra which Tanya didn’t have to pay making Tanya better off among the two.

Get what I’m saying?

Well, that’s not all.

Other Cons of EMI based purchases:

Long-Term Debt: Apart from the additional hidden costs that they don’t tell you, know this, that the product you are buying on EMI is fast depreciating and you are paying far more than its value in the long run.

Not so easy on the wallet: Most people have this misconception that buying products on EMIs reduces the burden on their wallets but the thing they don’t get is that it actually increases the burden on their wallets over time. EMI – A Debt Trap, remember?

Keep in mind your credit score: Credit score is basically a summary of your past and current borrowings and your repayment history. A good credit score will help you get a loan in future when an emergency arises whereas a bad credit score will ruin that chance forever. And nothing reflects more poorly on a report card than a bad history.

Do I need to say more to prove the fact that EMI’s are a killer trap you need to stay away from?

I hope not.

Image credits: Google Images

Sources: Business Today, The Economic Times

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  1. But now there are options like 0% interest… All the banks are offering 0% interest now a days with no processing fees… So i think now a days the one who is purchasing on EMI will be much happier then the one who is making cash on delivery…


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